McCain may withdraw from public financing

WASHINGTON  Sen. John McCain's presidential campaign told federal regulators Monday that he does not need their approval to withdraw from the public finance system for the primaries.

The campaign, in a letter to Federal Election Commission Chairman David Mason, also said McCain did not encumber his potential share of public matching funds as collateral for a crucial $4 million loan he obtained late last year.

McCain lawyer Trevor Potter said the Supreme Court concluded that public financing for campaigns is constitutional because it is voluntary. "As a result, candidates have a constitutional right to withdraw from the program," Potter, a former FEC chairman, wrote Mason.

McCain's loan, from Fidelity & Trust Bank, has become a central issue in the Arizona senator's attempt to bypass the public financing system and the strict spending caps that come with it. Mason told McCain last week that the commission's approval was required and that he needed to explain the terms of his loan.

"The campaign did not use its federal matching fund certifications as security for the campaign's bank loan," Potter wrote.

Lawyers for the bank said in their own letter Monday that the loan agreement was carefully drafted to give McCain the opportunity to withdraw from public financing during the primary elections. They said the loan terms specifically excluded from the collateral any potential share of public matching funds McCain was entitled to receive.

Potter, a Republican appointee to the commission, submitted the bank lawyers' letter to Mason. One of those lawyers, Scott E. Thomas, is also a former FEC chairman and Democratic appointee to the panel.

The flurry of correspondence came the same day the Democratic Party filed a complaint against McCain, calling on the FEC to investigate whether the likely Republican presidential nominee can legally bypass public financing for the primary and the strict spending limits that come with it. The FEC also has asked McCain to explain the loan terms.

Staying in the public financing system could be devastating for McCain because he would have to live within spending limits that he is already on the verge of surpassing.

The FEC last year approved, or certified, McCain to receive up to $5.8 million in public matching funds. McCain did not collect any of the money. To withdraw once such funds have been certified, a candidate must not have received any of the money nor encumbered it as collateral for a loan.

"The bank does not now have, nor did it ever receive from (McCain's campaign) committee, a security interest in any certification of matching funds," Thomas and lawyer Matthew S. Bergman wrote to Potter. "Any finding or determination to the contrary would be wholly inconsistent with the language of the loan documents, the intent and understanding of the parties and basic principles of banking, security and uniform commercial code law."

The loan documents specifically state that the collateral did not include McCain's right to the public funds. But the agreement with Fidelity & Trust Bank of Bethesda, Md., required him to reapply for matching funds if he withdrew from public financing and lost early primary contests.

"It is our understanding that, to date, none of those events have occurred," the bank lawyers wrote.

But Mason, the FEC chairman, told McCain last week that he must show that he did not use the promise of future public funds to help secure the loan and asked McCain to explain three specific provisions in the loan agreement.

Mason also said McCain must receive approval from four members of the six-member commission before withdrawing from the system  an immediate obstacle because the commission has four vacancies and cannot convene a quorum.

Potter, in his letter, challenged Mason's interpretation, noting that federal law and agency regulations contain no requirement for a vote to exit the system. As a result, he said, McCain's notification to the FEC on Feb. 6 that he was withdrawing from public financing should stand.

"The legal effect of Sen. McCain's withdrawal  whether it is found to occur automatically via his letter of Feb. 6 or is later ratified by a vote of the new commissioners  will be the same: Sen. McCain will not be subject to the program's spending limitations after Feb. 6, 2008," Potter wrote.

The DNC's complaint is also hamstrung by the lack of an FEC quorum.

Upon receiving a complaint, FEC staffers must notify the target and request a response. They then make a confidential recommendation to the commissioners whether to continue with a full investigation or whether to dismiss the complaint. Without a quorum, the FEC will be unable to make that determination.

The vacancies have not been filled because of a partisan dispute in the Senate. Many Democrats oppose nominee Hans von Spakovsky, a former Justice Department official, and Senate Majority Leader Harry Reid has proposed holding separate, simple majority votes on each nominee. Republicans want all FEC nominees voted on as a package.